Income Deferral is Back

Deferring tax by deferring income or accelerating expenses is generally a cornerstone of good tax planning. However, in recent years there have been tax rate increases which made this a bad idea since it would push income from a lower tax bracket year into a higher bracket as the rates went up the next year, negating the benefit of paying tax later. The rate increases of recent years appear to be over for now, so you should once again be looking to defer tax. This means you should look to accelerate deductions into the current year and defer income into the next year. There are many items for which you may be able to control timing:


  • Consulting income
  • Other self-employment income
  • Real estate sales
  • Gain on stock sales
  • Other property sales
  • Retirement plan distributions


  • State and local income taxes
  • Losses on stock sales
  • Real estate taxes
  • Mortgage interest
  • Margin interest
  • Charitable contributions

As with all tax planning, the general rule does not always work...

What About this $5 million Gift Tax Exclusion?

Did you know that the amount of money you can gift away to your heirs is the highest it has ever been in history - $5,120,000? It’s a very rare thing when Congress decides to give every American a $5MM tax break, but that's exactly what they did back on December 17, 2010. Specifically, the Lifetime Gift Exclusion which has never been more than $1MM was raised by Congress to $5MM (it's indexed, so in 2012 it's $5,120,000) and it applies to only two years - 2011 and 2012. Time is short so we are passionate about telling everyone about this because it is an incredible opportunity for everyone with assets over $1MM to pass those assets to heirs without paying any wealth transfer taxes - and done correctly those assets will not ever be subject to transfer taxes. The number of Americans with assets over $1MM is a very large number today, especially when the taxes we are talking about are levied on all stocks, bonds, homes, other real estate and life insurance proceeds...

Compromise on Estate and Other Tax Issues

The estate tax issue may be closer to resolution today (December 7, 2010) than any time in the last 9 years – at least for the next 24 months. Earlier today, President Obama held a news conference confirming he has reached a compromise with Republicans on multiple tax issues, including the estate tax. The preliminary agreement regarding estate taxes is a $5 million per individual estate tax exemption and a 35% estate tax rate for the next two years.

Republicans are lining up in support. Liberal Democrats are in revolt. There is certainly some back-room arm twisting going on in the Democratic Party as I write this post.

“We oppose acceding to Republican demands to extend the Bush tax cuts to millionaires and billionaires,” Rep. Peter Welch, D-Vt., said in a letter to Speaker Nancy Pelosi...

Convert to a Roth IRA for Free?

Do you want to convert your IRA to a Roth but think it will cost to much in taxes? Maybe not – read on!

Much has been written about converting your IRA to a Roth IRA in 2010. Even though this option to convert continues into the future for everyone the furor over the conversions in 2010 stems from the fact that the tax from the conversion does not need to be paid on the 2010 return but can instead be spread out and paid half in 2011 and the rest in 2012. This spreading option is not available for conversions after 2010. This ability to spread out the tax effect of the conversion is significant, however you may be able to do one better and convert for free! First determine if you have losses or losses carrying forward to 2010, abnormally high medical expenses or even unused charitable contribution carry-forwards in 2010...

Wondering What Healthcare Legislation Will Cost You?

I recently attended a seminar and spent a lot of time reviewing the tax effects of the Patient Protection and Affordability Act of 2010, the new health care legislation.  As the law is currently written, come 2013 and beyond the intention is to levy a new 3.8% tax on the “net investment income” of individuals earning more than $200,000 a year and couples filing jointly earning more than $250,000 a year. Net investment income is generally interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business) This is of course really bad news if you fall into this category.  What I realized is that this is another very good reason to make a Roth conversion...